John G. Matsusaka

Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years

In 23 American states, citizens can initiate and approve laws by popular vote; in the other 27 states, laws can be proposed only by elected representatives. This paper compares the fiscal behavior of state and local governments over the last 30 years under these two institutional arrangements. The main finding is that spending is significantly lower, on the order of 4 percent, in states with voter initiatives than in pure representative states. It is also found that local spending is higher and state spending is lower in initiative states. On the revenue side, initiative states rely less on broad-based taxes and more on charges tied to services. Taken together, the evidence indicates that the initiative leads to a reduction in the overall size of the government sector and suggests that it causes a decline in the level of redistributional activity.

Takeover Motives during the Conglomerate Merger Wave

This article examines the stock market response to acquisition announcements during and immediately after the conglomerate merger wave of the late 1960s. The main finding is that acquirer shareholders benefited from diversification acquisitions, which implies that diversification was not driven by managerial objectives. It is also shown that the market responded positively to bidders who retained the management of target companies and negatively to bidders who replaced target management. This is consistent with the hypothesis that the market favored acquisitions intended to exploit managerial synergies. It suggests that the market disliked takeovers that were motivated to discipline target management. Evidence on buyer and target price-earnings ratios is presented that is inconsistent with the conjecture that conglomerates were able to mislead investors by earnings-per-share manipulation.

Corporate Diversification, Value Maximization, and Organizational Capabilities

This article develops a dynamic model of a firm in which diversification can be a value-maximizing strategy even if specialization is generally efficient. The central idea is that firms are composed of organizational capabilities that can be profitable in multiple businesses and that diversification is a search process by which firms seek businesses that are good matches for their capabilities. The theory can account for diversified firms trading at discounts compared to single-segment firms, as well as some empirical regularities that are challenging to the agency theory of diversification, such as positive returns to diversification announcements. Copyright 2001 by University of Chicago Press.

Direct Democracy Works

The purpose of this essay is to describe the practice and theory of the increasingly important political phenomenon of direct democracy and the main lessons from the scholarly literature. Many questions remain to be answered, but the emerging view is that direct democracy works--allowing the general public to participate in lawmaking often seems to improve the performance of government.

Budget Referendums and Government Spending: Evidence from Swiss Cantons

New government spending must be approved by a referendum of citizens in many Swiss cantons. This decisionmaking procedure seems like a simple way to address citizen-legislator agency problems, but little systematic evidence is available concerning its effect on spending outcomes. We estimate spending regressions for Swiss cantons using panel data from 1986 to 1997. After controlling for demographics and other determinants of spending, mandatory referendums on new spending are found to reduce the size of the budget by 17% for the median canton.

Demand for Environmental Goods: Evidence from Voting Patterns on California Initiatives

This article studies voting behavior on 16 environmental ballot propositions in California in order to characterize the demand for environmental goods. The environment is found to be a normal good for people with mean incomes, but some environmental goods are inferior for those with high incomes, at least when supplied collectively. An important “price” of environmental goods is reduced income in the construction, farming, forestry, and manufacturing industries. Income and price can explain most of the variation in voting; there is little need to introduce “preference” variables such as political ideology.

Explaining voter turnout patterns: An information theory*

Voting research is rich in empirical regularities yet a parsimonious theory of voter turnout that can match the facts has proven to be elusive. This paper argues that voter turnout patterns can be explained by extending the traditional rational voter model to include limited information. A model is presented in which utility-maximizing consumers receive higher payoffs from voting the more confident they are of their vote choice. The model provides an explanation for the most important cross-sectional voter turnout patterns. In addition, it suggests a novel explanation for the post-1960 decline in U.S. participation.

Voter Turnout: How Much Can We Explain?

This paper evaluates the ability of common explanatory variables to predict who votes. Logit voting regressions are estimated with more than three dozen explanatory variables using survey and aggregate data for the 1979, 1980, 1984, and 1988 Canadian national elections. We find that the usual demographic variables such as age and education, and contextual variables such as campaign spending have significant effects on the probability of voting, but the models have low R2s and cannot predict who votes more accurately than random guessing. We also estimate regressions using past voting behavior as a predictor of current behavior, and find that although the explanatory power rises it remains low. This suggests that the difficulty in explaining turnout arises primarily from omitted time- varying variables. In some sense, then, it appears that whether or not a person votes is to a large degree random. The evidence provides support for the rational voter theory, and is problematic for psycho/sociological approaches.

The Downsian voter meets the ecological fallacy

This paper presents evidence that voter participation does not depend on the probability that one vote is decisive. An extensive summary of the empirical participation literature is provided which shows that most but not all studies have found that turnout in an electoral district is higher when the race is closer. Individual-level vote regressions for the 1979 and 1980 Canadian national elections are estimated using objective measures of closeness (as opposed to self-reported measures). The main finding is that a citizen is no more likely to vote in a close election than in a lands-lide election. District-level turnout regressions for the same elections are also estimated, and a significant relation between closeness and turnout is observed. This suggests that aggregation bias may generate a spurious closeness-turnout relation in district-level regressions.

Fiscal Effects of the Voter Initiative in the First Half of the Twentieth Century

This paper compares the fiscal policy of initiative and noninitiative states in the first half of the twentieth century. States with initiatives had higher combined state and local expenditure after controlling for income and other demographics but a lower ratio of state to local expenditure. This, together with existing evidence from later in the century, suggests that the voter initiative does not have a consistent effect on the overall size of state and local government. However, it does systematically lead to more decentralized expenditure.